BACKGROUND

Prices of highway construction materials have fluctuated considerably since the start of the COVID-19 pandemic. This trend, previously observed with petroleum-intensive materials such as asphalt concrete, has extended to other materials such as steel and Portland cement. Consequently, construction contractors have elevated their project bids as a risk-mitigation strategy. These elevated costs hamper the ability of state departments of transportation (DOTs) to deliver on their programmatic objectives in a timely and cost-conscious manner.

One strategy to mitigate this uncertainty is the use of price adjustment clauses in highway construction contracting. Contractual thresholds triggered by rising or falling material prices lead to adjustments in contractor payments. When administered properly, price adjustment clauses can lead to more equitable highway construction contracting practices.

Price adjustment clauses are not applied consistently by state DOTs. Research is needed to determine the state of the practice of price adjustment clause administration, assess the availability of pertinent tools and resources, develop strategies to effectively administer price adjustment contracting practices, and suggest enhancements and refinements to current practices.

OBJECTIVE

The objective of this research is to develop a guide to help state DOTs craft or update material price adjustment clauses for highway construction contracting. At a minimum, the guide should identify appropriate resources and material price indices, offer effective practices for managing contractual risk stemming from price fluctuation throughout the project lifecycle, identify opportunities for further refinement of the practice, and be accompanied by decision support tools and resources.

TASKS

PHASE I: Planning and Initial Outreach

Task 1. Conduct a review of relevant price adjustment literature and resources. 

Task 2. Design a survey of state DOTs and the construction contracting industry. The survey should include current practices, knowledge gaps, and areas of concern. Submit a technical memorandum summarizing Tasks 1–2 for NCHRP approval. Approval is required before work on subsequent tasks may begin. 

Task 3. Conduct a survey of state DOTs and construction contracting professionals. As needed, conduct targeted interviews of subject-matter experts to determine user needs.

Task 4. Propose a method to achieve the research objective, to be fully developed in Phase II. At a minimum: 

• Provide an overview of quantitative inputs, such as cost-to-work ratios/fuel usage factors
• Provide user guidelines for finding and choosing a correct index
• Discuss effective practices for specification development
• Provide an inventory of existing practices, including material price indices, model bid specifications, and case studies
• Provide suggestions for decision support resources to accompany the guide
• Discuss opportunities for further development of practice, including considerations for new material price indices
• Discuss the need for further outreach
• Provide an annotated outline for the proposed guide
• Describe the data to be collected for the decision support resources and the guide's intended users

Task 5. Prepare an interim report that documents Tasks 1–4 and provides an updated work plan for the remainder of the research. The updated plan must describe the process and rationale for the work proposed for Phase II.

PHASE II: Execute the Method and Produce Final Deliverables

Task 6. Execute the research method from Task 4 according to the approved interim report.

Task 7. Develop the guide and decision support tools. Revise based on panel and practitioner feedback. The draft guide and decision support tools shall be submitted no later than 6 months before the contract end date.

Task 8. Prepare the final deliverables, which shall include:

• A conduct of research report that documents the entire research effort
• The guide and decision support tools
• An executive memorandum summarizing key findings, providing suggestions for effective practice refinement, and discussing considerations for developing future material price indices
• Public outreach materials, including a PowerPoint presentation with speaker notes
• A standalone technical memorandum entitled “Implementation of Research Findings and Products”.

STATUS: Research in progress.